Saturday, August 07, 2010

Systemic Vulnerability

8/7/10 Systemic Vulnerability

Benjamin Franklin: "The greatest monarch on the proudest throne is obliged to sit upon his own arse.”

Wheat futures turned lower Friday, leaving the 23-month high territory. Wheat for September delivery lost 47 cents, or 6%, to $7.39 a bushel on the Chicago Board of Trade. The most-active December contract lost 51 cents, or 6.10%, to $7.64 a bushel. Wheat had opened higher and the September contract hit an intraday high of $8.41 a bushel.

The yield on the two-year note dropped below 0.5 percent for the first time.

Mark Hurd's tenure as chief executive of Hewlett-Packard Co., which saw the company ascend from a middling computer manufacturer to a top-tier hardware and services provider, was bookended by controversy over unethical conduct. The company said the investigation found that there was no violation of the company's sexual-harassment policy, but that there were violations of H-P's standards of business conduct.

Chicago-based Ravenswood Bank was closed by regulators Friday, marking the 109th U.S. bank failure of 2010. Ravenswood Bank had roughly $264.6 million in assets and $269.5 million in deposits as of June 30, the Federal Deposit Insurance Corp. said in a statement. The bank's failure will cost the federal deposit-insurance fund $68.1 million, the FDIC said.

. The Dow Jones Industrial Average fell 21.42 points, or 0.2%, to end at 10,653.56. On Friday, the S&P 500 index fell 0.4%, to 1,121.64. The Nasdaq Composite fell 0.2% to 2,288.47 Friday.

-U.S. consumers shed some of their debt in June for the fifth month in a row, the Federal Reserve reported Friday. Total seasonally adjusted consumer debt fell $1.34 billion, or a 0.7% annualized rate, in June to $2.418 trillion. May consumer credit was revised sharply higher to a decline of $5.28 billion compared with the initial estimate of a drop of $9.15 billion. The decline in June was led by revolving credit-card debt, which fell $4.48 billion or 6.7%. This is the 21st straight monthly decline in credit card balances. Non-revolving debt, such as auto loans, personal loans and student loans, increased $3.14 billion or 2.4%.

Samuel Adams about Fascism: "The liberties of our country, the freedom of our civil Constitution, are worth defending at all hazards; and it is our duty to defend them against all attacks. We have received them as a fair inheritance from our worthy ancestors: they purchased them for us with toil and danger and expense of treasure and blood, and transmitted them to us with care and diligence. It will bring an everlasting mark of infamy on the present generation, enlightened as it is, if we should suffer them to be wrested from us by violence without a struggle, or to be cheated out of them by the artifices of false and designing men."

NYTimes: The Pew Center estimated a $1 trillion gap as of fiscal 2008 between what states had promised workers in the way of retiree pension, health care and other benefits and the money they currently had to pay for it all. And some economists say that Pew is too conservative and the problem is two or three times as large.

Doug Noland: "Today, I believe global faith in government policymaking has been badly shaken. There is now an appreciation that policymakers are running out of options. Confidence that fiscal and monetary stimulus ensures a sustainable global recovery has waned. There is recognition that massive stimulus can’t assure market stability; in fact, profligate fiscal and monetary measures will likely prove destabilizing. There is appreciation that global central bankers can’t guarantee normally-functioning markets. There is, these days, no denying that structural debt issues will be a serious ongoing problem. And, importantly, the world is increasingly keen to the severity of U.S. financial and economic problems. Indeed, the post-Greece backdrop beckons for reduced risk and less leverage. Yet the markets can – at least for a period of time – luxuriate in destabilizing policymaking-induced liquidity excess and dysfunctional markets.
The dollar is in trouble. Our currency has now dropped for nine straight weeks, sinking to a near 15-year low against the yen. Crude oil traded above $82 this week. Wheat prices are up about 50% over the past month. The last thing our struggling economy needs right now (in common with 2007/08) is surging energy and food prices....It is worth noting that Treasurys held in reserve by foreign central banks at the New York Federal Reserve Bank have surged $74bn in just seven weeks. Dollar weakness appears, once again, to be forcing foreign central banks back into the role as “backstop bid” for the dollar in global currency markets. These dollar balances are then “recycled” back into our Treasury market, a dynamic that does not go unrecognized by the speculator community. This presses market yields only lower, increasing the risk of prepayment on mortgage securities and forcing additional interest rate hedging (further exacerbating the decline in market yields). And once a market dislocates, many will pile on in search of easy speculative profits.....Over time, the volatility, uncertainty and escalating market stress will prove a subprime-like wrecking ball on confidence. I need to go back and count the number of trading sessions in 2008 between seemingly over-liquefied markets and Credit market seizure.
My expectation remains that markets, having disciplined Athens and initiated austerity in the euro-zone, will inevitably set its sights on Washington profligacy. Too reminiscent of the Mortgage/Wall Street Finance Bubble, the markets seem determined to ensure that this disciplining process is methodically delayed until the very maximum levels of Credit excess, speculative froth, market distortion, and systemic vulnerability have been achieved."

The civilian labor force participation rate (64.6%) and the employment-population ratio (58.4%) both dropped one-tenth of a point in July. These measures have declined by 0.6 percentage point and 0.4 percentage point, respectively, since April.

State & local government payrolls have fallen in six of the seven months of 2010, remaining unchanged in March. I see nothing to change this trend.

Saudi Arabia and the makers of the BlackBerry smartphone have reached a deal on accessing users' data that will avert a ban on the phone's messenger service, a Saudi official said Saturday.

Reuters: Two-thirds of the 50 states projected budget gaps for their current fiscal year. They started out the period with a cumulative $84 billion hole, government associations estimate, an amount equal to 0.6 percent of total U.S. output. Cities facing shortfalls may have to purge nearly 250,000 jobs from public payrolls over the next 18 months, according to a recent survey, potentially enough to drive up the jobless rate by roughly 0.2 percentage points.

Clusterstock: "Since 2007, the ratio of distressed sales to overall sales has gone from around 1% to above 23% currently. Hospitality properties are seeing the highest ratio, with 35% of all sales occurring being distressed. Multifamily properties are seeing the next highest level of distress at 28%, followed by office properties at 21%, retail properties at 18%, and industrial properties at 17%."

Glenn Greenwald: "Does anyone doubt that once a society ceases to be able to afford schools, public transit, paved roads, libraries and street lights -- or once it chooses not to be able to afford those things in pursuit of imperial priorities and the maintenance of a vast Surveillance and National Security State -- that a very serious problem has arisen, that things have gone seriously awry, that imperial collapse, by definition, is an imminent inevitability? Anyway, I just wanted to leave everyone with some light and cheerful thoughts as we head into the weekend."

Juan Cole: "The horrific flood in Pakistan, the worst in its history, has now destroyed more homes (650,000) than the 2005 earthquake. And, some 12 million Pakistanis, nearly 10 percent of the country’s population, have been at least somewhat affected by the floods. About 1600 persons have been killed."

Ronald Reagan: “Someone once said that every form of government has one characteristic peculiar to it and if that characteristic is lost, the government will fall. In a monarchy, it is affection and respect for the royal family. If that is lost the monarch is lost. In a dictatorship, it is fear. If the people stop fearing the dictator he'll lose power. In a representative government such as ours, it is virtue. If virtue goes, the government fails. Are we choosing paths that are politically expedient and morally questionable? Are we in truth losing our virtue? . . . If so, we may be nearer the dustbin of history than we realize.”

Friday, August 06, 2010

Labor Participation Rate

8/6/10 Labor Participation Rate

Total nonfarm payroll employment declined by 131,000 in July, and the unemployment
rate was unchanged at 9.5 percent. Federal government employment fell, as
143,000 temporary workers hired for the decennial census completed their work.
Private-sector payroll employment edged up by 71,000.
Average hourly earnings increased 2 cents, or 0.1% to $19.04. This was in line with expectations. Earnings are up 2.3% in the past year.
The average workweek was up six minutes to 34.2 hours.
Total employment fell a revised 221,000 in June, today’s figures showed. Employment at service-providers fell for a second month.
Construction companies cut payrolls by 11,000 after reducing them 21,000 in June. The number of temporary workers decreased
by 6,000, the first drop since September.
Government payrolls decreased by 202,000. State and local governments employment declined by 48,000, while federal
government jobs dropped by 154,000.

About 2.6 million persons were marginally attached to the labor force in July, an increase of 340,000 from a year
earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were avail- able for work, and had looked for
a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

"The truth is that all men having power ought to be mistrusted."
James Madison

Houston Chronicle: The revelation that BP's Texas City refinery emitted toxic benzene for more than a month has ignited a furor in the port community that has suffered its share of deadly industrial accidents and toxic spills.
Thousands of residents who fear they may have been exposed to the known carcinogen released at the oil refinery from April 6 to May 16 have been flooding parking lots and conference halls where local trial attorneys hosted information sessions and sought clients for class-action lawsuits against the oil giant.
BP faces the new challenge just as it is reaching a key milestone in another crisis — plugging the Gulf of Mexico well that blew out in an oil spill disaster that is costing the company billions of dollars.
On Wednesday, more than 3,400 people lined the hallways and sidewalks around the Nessler Center to sign on to a $10 billion class-action lawsuit filed Tuesday in Galveston federal court by Friendswood attorney Anthony Buzbee.
The lawsuit alleges the release of 500,000 pounds of chemicals - including 17,000 pounds of benzene - has jeopardized the health and property values of people who live and work in the area. At the nearby College of the Mainland, a separate town hall meeting drew a crowd of 600.

The labor participation rate the labor participation rate in April was 65.2% and now its down to 64.6%.

The CES Birth/Death Model also shows declines in new/small business/estimated job creation. Last month 147,000 new jobs were estimated into existence. This month: Just 6,000 with another 12,000 lost in manufacturing and 9,000 each in Financial activities and the Trade Transportation and utilities group.

"A popular government without popular information or the means of acquiring it, is but a prologue to a farce, or a tragedy, or perhaps both."
James Madison

The world economy will "almost certainly" see a prolonged period of slow growth, resulting in an end to the era of high profitability for banks, Bank of China Ltd. Chairman Xiao Gang wrote.

"The level of complacency over the economic outlook is palpable and so reminiscent of the fall of 2007 when everyone believed the Fed could navigate us into a soft landing in the face of a credit collapse," David Rosenberg wrote...."out of the 18 industries polled in the ISM, only 10 reported growth, which was down from 13 in June and the lowest tally since December 2009, while 4 actually contracted," Rosenberg wrote.
What's more, the new orders component in the ISM was down 12.2 percentage points in the last two months, he added.
"The last time this happened was October 2008 and in fact is a 1-in-25 event," according to Rosenberg.

Reuters: Chinese Vice Premier Li Keqiang told the visiting Iranian oil minister on Friday that Beijing would maintain cooperation with Tehran on existing projects, after the United States called on Beijing to observe sanctions.
"Iran is an important trade partner of China's in western Asia and North Africa and one of the country's main oil suppliers. Bilateral economic and trade cooperation has achieved fruitful results," state television paraphrased Li as telling minister Massoud Mirkazemi.

Home prices will decline into next year, Fannie Mae said Thursday, reversing earlier projections that the housing market would stabilize this year.
Former Federal Reserve Chairman Alan Greenspan said Sunday on NBC's "Meet the Press" that a so-called double-dip recession was possible "if home prices go down."

Employment peaked in December 2007. I see nothing on the horizon to encourage full-time hiring.

"I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations. "
James Madison

Arch Crawford on the Cardinal Climax: "This huge alignment will be followed by a Full Moon on the Fall Equinox and a Lunar Eclipse on the Winter Solstice. We expect the depth and scope of dislocations during this period to exceed anything we have ever witnessed, both in otherwise civilized interaction among nations, and likely our fill in natural disasters."

Rigzone: China's oil consumption rate climbed from 4,477 million b/d in 1999 to 8,625 million b/d in 2009, reflecting the energy needs of a populous country with a growing economy, according to the BP Statistical Review of World Energy June 2010.
While China's oil production rate increased during the same time period, it fell short of meeting the domestic consumption rate. Oil production climbed from 3,213 million b/d in 1999 to 3,901 million b/d in 2008, but declined to 3,790 million b/d in 2009. Production in 2009 represented 4.9 percent of the world's oil production.
Meanwhile, China's proved oil reserves declined from 16.0 billion barrels at the end of 1989 to 15.1 billion barrels at year-end 1999 to 14.8 billion barrels at the end of 2009, or 1.1 percent of the world's proved oil reserves.
Since 1999, China's consumption of natural gas has grown from 759.2 billion cubic feet (21.5 billion cubic meters) in 1999 to 3.1 trillion cubic feet (88.7 billion cubic meters) in 2009. During that time, China's gas production has steadily increased from 899.9 billion cubic feet (25.2 billion cubic meters) in 1999 to 3 trillion cubic feet (85.2 billion cubic meters).
China's proved natural gas reserves grew from 36.02 trillion cubic feet (1.02 trillion cubic meters) at year-end 1989 to 48.3 trillion cubic feet (1.37 trillion cubic meters) at year-end 1999 to 86.7 trillion cubic feet (2.46 trillion cubic meters), at the end of 2009.
Gas will play an increasingly important role in China's energy future as the Chinese government is promoting the use of more gas to meet the country's large energy appetite.

Beazer's orders falls 33%; posts loss of $27.8M despite $55.2M in debt-retirement gain.

Bankruptcy filings rose 9 percent in July compared to a year earlier, according to new data from the National Bankruptcy Research Center.
For the year to date, seven states have 25 percent or more bankruptcy filings than they did in the same period in 2009, a chart accompanying the article shows. Those states are Arizona, California, Colorado, Hawaii, Montana, Utah and Wyoming.
Alabama, Mississippi, South Carolina, Tennessee, and West Virginia had fewer bankruptcy filings year-to-date than they did in the same period a year ago.

Charles Hugh Smith: "Like crack cocaine, credit offers an amazingly satisfying and thus addictive high. As with coke, the consequences are safely in the future--until the future arrives....The problem with addiction is that eventually it dominates one's life in a completely self-destructive way. The problem with credit/debt is that servicing the debt (paying interest) eventually dominates one's income."

ZeroHedge: "The ever critical ratio of civilian employment to population is now at 58.4%... It was last this low (to the upside) in October of 1983."

"If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy. "
James Madison

The euro rose above the $1.33 level on Friday as the dollar fell broadly after disappointing U.S. payrolls data. The dollar index dropped to 80.141, down from 80.815 in late North American trading Thursday. The euro rose to $1.3324, up from $1.3177.

Wheat futures posted a fresh 23-month high Friday, rising 1.7% as concerns about Russia's drought hitting the country's wheat crop continued and a day after the Eurasian country enacted a temporary ban on wheat exports. Wheat for nearby September delivery added 13 cents to $7.99 a bushel on the Chicago Board of Trade. The most-active December contract rose a penny, or 0.1%, to $8.16 a bushel added 60 cents, or 7.9%, to settle at $8.15 a bushel. Chicago wheat has surged 20% this month.

Thursday, August 05, 2010


8/5/10 Unemployment

China’s banking regulator told lenders last month to conduct a new round of stress tests to gauge the impact of residential property prices falling as much as 60 percent in the hardest-hit markets, a person with knowledge of the matter said.
Banks were instructed to include worst-case scenarios of prices dropping 50 percent to 60 percent in cities where they have risen excessively, the person said, declining to be identified because the regulator’s requirement hasn’t been publicly announced. Previous stress tests carried out in the past year assumed home-price declines of as much as 30 percent.

Transcoean Ltd. shares jumped 6% to $56.69 after the company said in a filing that its contract with BP PLC (BP) could protect it from liabilities and fines in the Deepwater Horizion explosion on April 20.

Freddie Mac said Thursday the 30-year fixed-rate mortgage average fell to 4.49% with an average 0.7 point for the week ending Aug. 5, the lowest since the survey was launched in 1971.

The number of people applying for initial unemployment benefits climbed by 19,000 to 479,000 in the latest week, the Labor Department reported Thursday. The four-week average of initial claims -- a more accurate gauge of employment trends - rose by 5,250 to 453,250. Economists surveyed by MarketWatch had expected state claims to drop to 453,000 in the week ended July 31. The number of workers who continue to receive state unemployment checks, meanwhile, fell by 34,000 to 4.54 million in the week ended July 24, the latest data available. “There really is no upside momentum in the labor market, and that’s a critical long-term determinant of where the economy is going,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York. “People just aren’t getting jobs.”
ZeroHedge: "The only silver lining: those who had previously fallen of insurance lists, are now back to collecting subsidies from the government, as the ranks of those collecting EUC and Extended Benefits increased by 257K in the week ended July 17, courtesy of Obama's most recent "communism-lite" stimulus."

Russian Prime Minister Vladimir Putin announced on Thursday a temporary ban on grain exports after a drought killed many of the nation's crops, the Financial Times reported on its website. At a cabinet meeting, Putin said that Russia cannot allow a rise in domestic prices, according to the report. The ban will become effective from Aug. 15. Following the news, September wheat futures rallied more than 8% to $7.86 a bushel in Chicago.

Working gas in storage was 2,948 Bcf as of Friday, July 30, 2010, according to EIA estimates. This represents a net increase of 29 Bcf from the previous week. Stocks were 132 Bcf less than last year at this time and 221 Bcf above the 5-year average of 2,727 Bcf. In the East Region, stocks were 16 Bcf above the 5-year average following net injections of 34 Bcf. Stocks in the Producing Region were 116 Bcf above the 5-year average of 863 Bcf after a net withdrawal of 8 Bcf. Stocks in the West Region were 88 Bcf above the 5-year average after a net addition of 3 Bcf. At 2,948 Bcf, total working gas is within the 5-year historical range. Consensus was +34.

Retail sales at U.S. chain stores rose 2.9% in July, falling short of forecasts.

BAE has for almost two decades been the largest employer in Sealy, population 5,200. But Wednesday it announced it will slash its global tactical systems workforce in Texas and Michigan by almost half by year's end. That means as many 1,300 of 2,900 positions will be cut, with 97 percent of them in the Sealy-Houston-Katy area, said BAE spokesman Mike Teegardin.

Rob Hanna: "While the SPX was closing at a new short-term high yesterday the NYSE volume was coming in at the lowest level in over two weeks according to my data. Over the last several years this has not been a good combination - even when the market is in an uptrend."

Rasmussen Reports indicates: 67% of Political Class Say U.S. Heading in Right Direction, 84% of Mainstream Disagrees.
Gallup's Job Creation Index finds job growth essentially unchanged for the third consecutive month, with a score of +7 in July -- about on par with +8 in June and +7 in May.

The Dow Jones Industrial Average ended down 5.45 points, or 0.1%, at 10,674.98. The S&P 500 index dropped 1.43 points, or 0.1%, to 1,125.81, weighed down by the technology and financials sectors, while materials and consumer discretionary advanced. The Nasdaq Composite lost 10.51 points, or 0.5%, to 2,293.06.

Wednesday, August 04, 2010

Temp Employment

8/4/10 Temp Employment

U.S. private-sector firm employment rose 42,000 in July, according to the ADP employment report released Wednesday. "July's rise in private employment was the sixth consecutive monthly gain," said Joel Prakken, chairman of Macroeconomic Advisers, which produces the report from anonymous payroll data supplied by ADP. "However, over those six months increases have averaged a modest 37,000, with no evidence of acceleration." On Friday, the government is scheduled to report nonfarm payrolls for July, and economists polled by MarketWatch are looking for a decline of 60,000. That payrolls estimate includes an expected increase of 96,000 jobs in the private sector, and layoffs of about 145,000 temporary Census workers.
Economists surveyed by Bloomberg News had forecast a gain of 30,000, according to the median estimate. July’s ADP Report estimates nonfarm private employment in the service-providing sector rose by 63,000. Employment in the goods-producing sector declined 21,000 during July while employment in the manufacturing sector decreased 6,000, the first decrease in six months.Large businesses, defined as those with 500 or more workers, saw employment remain flat and employment among medium-size businesses, defined as those with between 50 and 499 workers increased by 21,000. Employment among small-size businesses, defined as those with fewer than 50 workers, increased by 21,000 in July. Most of the grow was in small/medium services while good manufacturing continued to drop, down another 21,000 jobs for the month.

Barnes & Noble Inc., under pressure from activist investor Ron Burkle, put itself up for sale as a shift to digital books leads to losses at the biggest U.S. bookstore chain. The stock jumped in late trading yesterday.
The board appointed a committee to evaluate strategic options, including a sale, Barnes & Noble said in a statement yesterday. Chairman Leonard Riggio, the company’s founder and biggest shareholder, told the board that he may participate in an investor group to acquire the company.
Burkle’s Yucaipa Cos. sued Barnes & Noble in May and is seeking to invalidate the company’s poison-pill defense against takeovers so he can boost his stake in the bookseller. In July court testimony, Riggio said he has a “strong preference” for being Barnes & Noble’s largest holder. Riggio owns about 30 percent, while Burkle holds a 19 percent stake.

Confidence among companies in the UK service sector dipped in July, disappointing economists who said the rapid recovery in the second quarter was likely to weaken in the autumn.
The closely watched purchasing managers survey for private services dropped to 53.1 last month from 54.4 in June. Although the figure is still associated with a growing service sector, the result was the weakest in this survey for 13 months and was below economists’ expectations of an unchanged figure. In contrast to falling service sector confidence in the UK, the equivalent eurozone PMI rose in July to 55.8, a touch higher than 55.5 the previous month.

NY Times: Local and state governments, as well as some companies, are resorting to wage reductions, often to avoid layoffs.

BP has billed Anadarko Petroleum $1.2 billion for Anadarko's share of financial liability incurred so far in the Deepwater Horizon accident and spill, Anadarko said Tuesday in a Securities and Exchange Commission filing along with its second-quarter results.
Anadarko believes BP was negligent in operating the blown-out well and has withheld payments connected with the spill.
The Woodlands-based Anadarko has a 25 percent stake in the BP well that blew out April 20 in the Gulf of Mexico.

Dirk van Dijk believes the outlook for housing prices, and with it the savings rate and consumer spending, are a far bigger cause for concern than anything surrounding future regulations or taxes.

BP said it controlled the pressure in its d.amaged oil well with drilling mud, moving a step closer to permanently sealing the spill.

ABC Consumer Comfort index plummet near 2010 low at -50, from -48 week prior.

On Monday, U.S. District Judge Henry Hudson denied Health and Human Services Secretary Kathleen Sebelius's motion to dismiss a lawsuit brought by the state of Virginia challenging the new health law. His ruling stated that it is far from certain Congress has the authority to compel Americans to buy insurance and penalize those who don't. Missouri voters on Tuesday rejected the new U.S. healthcare bill, approving a measure that would forbid the federal government from penalizing people who do not buy health insurance. With 78 percent of precincts reporting, 72.6 percent of voters supported the Health Care Freedom Act, also known as Proposition C, while 27.4 percent rejected it. In approving the measure, Missouri won a victory in a series of planned assaults around the country against the sweeping reform, which was a major part of President Barack Obama's domestic agenda and became law in March.

US Pending homes sales index fell 2.6% to 75.7 in June.

Charles Hugh Smith: "While temp jobs are rising at a strong 19%, year over year, private payrolls minus temp jobs is a negative .7%, meaning that permanent jobs in the private sector are still declining."

Xstrata says could be open to a potential merger with either Glencore or with another commodity entity under the right circumstances.

"The NMI (Non-Manufacturing Index) registered 54.3 percent in July, 0.5 percentage point higher than the 53.8 percent registered in June, indicating continued growth in the non-manufacturing sector at a slightly faster rate. The Non-Manufacturing Business Activity Index decreased 0.7 percentage point to 57.4 percent, reflecting growth for the eighth consecutive month. The New Orders Index increased 2.3 percentage points to 56.7 percent, and the Employment Index increased 1.2 percentage points to 50.9 percent, reflecting growth after one month of contraction. The Prices Index decreased 1.1 percentage points to 52.7 percent in July, indicating that prices are still increasing but at a slower rate than in June. According to the NMI, 13 non-manufacturing industries reported growth in July. Respondents' comments are mixed. They vary by industry and company, with a tilt toward cautious optimism about business conditions."

Pres. Obama is 49 today and travels later to Chicago for a birthday party. Today his wife and oldest daughter left for a Spain vacation. Anyone consider this odd? They could not have left tomorrow?

Yves Smith: "A Wells Fargo/Gallup survey of 604 small business owners conducted in early July showed a plunge in already negative readings to new lows. This gloomy outlook matters because small businesses were the biggest source in job creation in the last upturn and are expected again to be the main source of hiring....In a 2010 survey by the National League of Cities, 51 percent of the cities that responded said they had either cut or frozen salaries of city employees, 22 percent said they had revised union contracts to reduce some pay and benefits, and 19 percent said they had instituted furloughs."

Google Inc. is acquiring closely-held Slide Inc. for $182 million, according to a report published Wednesday. Technology blog TechCrunch reported that Google is buying the maker of so-called widgets for social-networking sites as part of an effort to cobble together its own social-networking and gaming strategy. Slide rose to prominence as a developer of software for Facebook Inc., the social-networking service that recently acquired over 500 million users. A Google spokesman said the company doesn't comment on rumor or speculation.

A federal judge overturned a ban on same-sex marriages in California, calling the ban unconstitutional, according to media reports Wednesday. Supporters of the ban are expected to appeal court's decision. The ruling was made by Chief U.S. District Judge Vaughn Walker in a lawsuit filed by two same-sex couples who claimed the ban violated their civil rights.

The Dow Jones Industrial Average rose 44.05 points, or 0.4%, to 10,680.43. The S&P 500 index gained 6.78 points, or 0.6%, to 1,127.24, while the Nasdaq Composite rose 20.05 points, or 0.9%, to 2,303.57.

The Labor Department report is expected to show non-farm payrolls fell by 65,000 in July after declining by 125,000 in June as temporary workers hired to conduct the country's decennial census were dismissed.
Given the distortions produced by the census, many economists are looking more closely at the private-sector gauge in the non-farm payrolls report.
Private-sector payrolls are seen rising a modest 90,000 in Friday's data, and the unemployment rate is expected to climb to 9.6 percent, from 9.5 percent in June.

Tuesday, August 03, 2010

Small Business Index

8/3/10 Small Business Index

Procter & Gamble Co posted a lower-than-expected profit on Tuesday as higher spending on marketing offset sales growth.
P&G, whose brands include Pampers diapers, Bounty paper towels and Gillette razors, said earnings for the fourth quarter ended on June 30 fell to $2.19 billion, or 71 cents per share, from $2.47 billion, or 80 cents per share, a year earlier.
Analysts on average expected profit of 73 cents per share, according to Thomson Reuters I/B/E/S.
Net sales rose 5 percent to $18.93 billion.
The company forecast first-quarter earnings of 97 cents to $1.01 a share.
P&G stock was down 2.9 percent at $60.25 in premarket trading.

The Wells Fargo/Gallup Small Business Index -- which measures small-business owners' perceptions of six measures of their current operating environment and future expectations -- fell 17 points to -28 in July. This is its lowest level since the index's inception in August 2003. Small-business owners' future expectations for their operating environment show significant declines in their revenue, cash-flow, capital-spending, and hiring expectations for the next 12 months. Forty-two percent expect it to be "somewhat" or "very difficult" to obtain credit -- no improvement from April and January. One in five (22%) small-business owners expect their companies' financial situations a year from now to be "somewhat" or "very bad."

Consumer spending, adjusted for inflation, rose 0.1 in June, the Commerce Department reported Tuesday. Spending with taking into account inflation was flat. Disposable incomes rose 0.2% in June. Wall Street economists had expected a 0.2% gain in incomes, a 0.1% rise in spending. Core consumer prices did not change in June and were up 1.4% over the past year.

Treasury prices rose, pushing yields on 2-year notes to fresh historic lows, after an article in The Wall Street Journal saying the Federal Reserve may consider a modest change in how they manage their massive portfolio, by using receipts from maturing mortgage debt or Treasury bonds to purchase more debt. "Effectively, the Fed, by making this adjustment will signal to the market that they are concerned about their forecasts," said William O'Donnell, head of Treasury strategy at RBS Securities. "While I have been in the camp that the second round of quantitative easing is further away, this smaller adjustment would have an impact in reducing overall Treasury yields." Yields on 2-year notes slipped to a new record low of 0.52% earlier. They traded at 0.53% recently, down 3 basis points.

China will boost the number of commercial banks permitted to import and export gold, the nation's central bank said on Tuesday. The new regulations will broaden the market for such trades beyond the five largest commercial banks and help expand the scope and depth of the gold market, the People's Bank of China said in a statement Tuesday, according to reports. Analysts cited in reports said the liberalized trading rules would likely bolster China's demand for the precious metal.

A total of 4.9 million barrels of oil, or 62,000 barrels of oil a day, leaked into the Gulf of Mexico from the damaged Macondo well operated by BP PLC before it was capped last month, The Wall Street Journal reported Tuesday citing estimates of scientists working with the U.S. government.

(Bloomberg) -- Genzyme Corp., the world’s largest maker of medicines for genetic diseases, has begun takeover talks with Sanofi-Aventis SA after receiving a proposal from the French drugmaker, according to two people with knowledge of the matter.
Sanofi, based in Paris, outlined an offer of $67 to $70 a share in a letter to Genzyme’s board, said one of the people, who declined to be identified because the discussions are private. Genzyme’s shareholders are looking for a bid above $80 per share, or $21.3 billion, these people said. The boards met separately yesterday to discuss their strategies and how to proceed, said one of the people.
Sanofi needs takeovers to help replace revenue it will lose as its medicines face competition from generic drugs. The drugmaker, the largest in France, cut its 2010 earnings forecast this month after U.S. regulators approved a generic rival to its Lovenox blood thinner.
“Genzyme is pretty unique,” said Sven Borho, a partner with Orbimed Advisors, holder of about 2.5 million Genzyme shares, in a July 26 telephone interview. “I don’t think the $80s are unrealistic.”

Paul Kasriel: "The July ISM manufacturing composite index slipped 0.7 points to a level of 55.5. This marks the third consecutive decline in this index (see Chart 1). Although the supplier deliveries and employment indexes increased marginally (by 1.0 and 0.8 points, respectively), the July composite index would have declined by significantly more if it had not been for the 4.4 point increase in the inventories index. In contrast, the July production index slipped by 4.4 points to a level of 57.0 - the third consecutive decline in this index and the lowest reading of the level since September 2009. The near-term outlook for production is getting even darker inasmuch as the new orders index dropped 5.0 points in July after a 7.2 point decline in June. At 53.5, the level of the new orders index is the lowest since June 2009, the month in which we believe the recession ended. Back orders also are declining."

Americans are spending a quarter of their Internet time on Facebook or other social networking sites, while online video games have passed sending e-mail as the second-most popular online activity, according to a new report from the Nielsen Co.
The report said that Americans spent 22.7 percent of their online time on social networking or blogs in June 2010, a 43 percent increase compared with June 2009.
Video game playing increased by 10 percent in the same period to account for 10.2 percent of time spent online, said Nielsen, which uses data gleaned from a select group of people the company monitors.
Online video games edged e-mail usage, which declined 28 percent to an 8.3 percent share of online time.
Meanwhile, time spent on Web portals decreased 19 percent during the year to a 4.4 percent share of all activity, and instant messaging had a 4 percent share, a 15 percent drop.

Construction spending was up 1-10th of one percent from May but that is down 7.9% compared with 2009. There was a 42% increase in federal healthcare construction!

The dollar hit an eight-month low of 85.95 yen last week, having shed about 6 percent since mid-June as weak economic data sparked worries about the sustainability of a U.S. recovery.
A further drop in the dollar below a trough set last November at 84.82 yen would take the Japanese currency to a 15-year peak and bring it ever closer to its 1995 record high of 79.75 per dollar.

"The consumer is still very tepid, but businesses are humming along," said Shawn DuBravac, chief economist for the Consumer Electronics Assn., referring generally to large companies. "But this disconnect," he added, "can only happen for a finite period of time." In other words, if consumers don't step up their spending — which accounts for 70% of the American economy — businesses won't be investing much more for very long. "It's difficult to have a strong sustained recovery without households coming to the party," said Paul Ashworth, senior U.S. economist at Capital Economics in Toronto.

The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -17.

China's central bank in October may increase the amount of reserves the nation's banks are required to keep, citing officials from the banking industry.

Two Republican senators have conducted an exhaustive survey of the Obama administration’s $787 billion economic stimulus spending and found that some of the spending didn’t create jobs — it actually led to job losses. All in all, Senators Tom Coburn (R-Okla.) and John McCain (R-Ariz.) scrutinized 100 projects, finding that some eliminated jobs, and others were simply questionable expenditures of money.
The report, obtained in advance by CNBC, spotlights everything from federal stimulus money that went to study the effects of cocaine on monkeys to dollars that went to construction projects that blocked access to local businesses — which laid off employees as a result.

The July rise in wheat prices, the fastest in 51 years, indicates that shortages in agriculture are coming, Jim Rogers, chairman of Rogers Holdings, told Tuesday.
Wheat prices in Europe hit their highest level in two years, rising almost 50 percent since late June as Russia's wheat crop was affected by drought.

The Oil Drum: "It is projected that between now and 2020, Europe will need to develop additional natural gas supplies of approximately 120 - 150 Gcm/a (thousand million cubic meters per year) from more distant sources, if demand as projected by EIA and IEA is to be met. As of 2009 Europe obtained approximately 47 % of its natural gas supplies from distant sources; this is projected to grow to more than 70 % by 2020. Europe’s growing dependence on natural gas from more distant sources may also impact its future policies to ensure security of energy supplies. If additional supplies fail to appear, Europe could see an imbalance in natural gas supply and demand starting as early as 2011/2012."

Jun. Factory Orders: -1.2% vs. consensus of -0.5%. Factory orders had decreased -1.4% in May. Ex-transport, -1.1%. Shipments -0.8% vs. -1.8% prior.

via ZeroHedge: U.S. Treasuries fail to provide safety or liquidity when it comes to managing China’s $2.45 trillion foreign-exchange reserves, said Yu Yongding, a former central bank adviser. “I do not think U.S. Treasuries are safe in the medium- and long-run,” Yu, a member of the state-backed Chinese Academy of Social Sciences, wrote yesterday in an e-mailed response to questions. China is unable to sell the securities in a “big way” and a “scary trajectory” of budget deficits and a growing supply of U.S. dollars put their value at risk, he said.

U.S. and foreign businesses lowered their demand in June for capital equipment for the second straight month, the Commerce Department reported Tuesday. Factory orders decreased 1.2% in June. Orders fell a revised 1.8% in May, down from the prior estimate of a 1.4% drop. Orders for durable goods fell 1.2% in June, revised down from 1.0% estimated a week ago. Orders for nondurable goods fell 1.3% in June.

September oil settled $1.21 higher, or 1.5%, to $82.55 a barrel on the New York Mercantile Exchange. Natural gas declined 1.3%, settling at $4.64 per million British thermal units.

The American Petroleum Institute on Tuesday reported a decline in oil inventories of about half the decrease expected, which doesn't bode well for oil futures tomorrow. The Washington-based trade group reported a draw of 776,000 barrels on the week ended July 30. Analysts polled by Platts expected a decline of 1.2 million barrels for the week. The API also reported an increase of 2.3 million barrels of gasoline, compared to analyst expectations of a decrease of 870,000 barrels. Stocks of distillates, which include heating oil and diesel, rose 1.1 miillion barrels, the API said. Analysts surveyed by Platts had forecast an increase of 1.2 million. Refineries operated at 86.7% capacity, down from 87.4% in the previous week, the API said. The refineries were expected to be running at 90% of their capacity, down 0.6%.

The Dow Jones Industrial Average fell 38 points, or 0.4%, to end at 10,636.38. The S&P 500 index fell 5.40 points, or 0.5%, to 1,120.46. The Nasdaq Composite fell 11.84 points, or 0.5%, to 2,283.52.

Monday, August 02, 2010

Stock Rally

8/2/10 Stock Rally

John Hussman: "Stocks are a claim to a long-term stream of cash flows that will actually be distributed to investors over time, and that this stream of cash flows cannot be estimated from a single year's earnings number. The main reason for this is that profit margins vary from year-to-year over the business cycle, and tend to mean-revert over the long-term. Earnings (net and operating) tend to be depressed during periods of economic strain, but when they reflect compressed profit margins, they are strongly associated with above-average rates of subsequent growth over the following 7-10 years. In contrast, earnings that reflect elevated profit margins are strongly associated with poor rates of subsequent growth. When analysts take earnings figures at face value, and presume to "capitalize" them simply by dividing by interest rates, they demonstrate a Kindergartener's grasp of securities valuation....Currently, the forward operating earnings model above suggests an average annual 10-year total return for the S&P 500 of 5.5%, while indicating that the S&P 500 was briefly and moderately undervalued at the 2009 market low."

China’s manufacturing contracted for the first time in 16 months in July, a survey of purchasing executives showed. A purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics fell to 49.4 from 50.4 in June.

Crude-oil futures rallied 3% Monday, as soaring stocks ignited hopes for a speedier recovery and thus for more need for energy products, and a gauge of U.S. manufacturing activity declined less than expected. September crude added $2.39 to $81.34 a barrel. Natural gas sank 4.5%, declining 22 cents to $4.70 per million British thermal units.

Monday's stock rally pushed the SPDR S&P 500 ETF above its 200-day moving average, a closely watched technical indicator. Shares of the ETF rose nearly 2% to $112.35 in morning trade, above their 200-day moving average of $110.84. The jump in stocks Monday also pushed the S&P 500 fund into positive territory for the year-to-date period, according to FactSet Research.

The Institute for Supply Management said its manufacturing index fell to 55.5% in July from 56.2% in June. But the decline was not as sharp as expected. The consensus forecast of estimates collected by MarketWatch was for the index to fall to 55.0%. The key employment index improved to 58.6% in July from June's 57.8%. On the other hand, new-orders and production slipped in July. The group’s bookings gauge, considered a leading indicator, fell to a one-year low.

The Dow Jones Industrial Average gained 208 points, or 2%, to end at 10,674.38. The S&P 500 index rose 24.26 points, or 2.2%, to 1,125.86, led by a 3.6% rally in the energy sector as crude oil topped $81 a barrel. The Nasdaq Composite gained 40.66 points, or 1.8%, to 2,295.36.

ZeroHedge: "The last time the market was at 1,125, the 10 Year was just 45 bps higher than the current 2.96%, confirming that all is perfectly illogical with the world."

Sunday, August 01, 2010


free web counter

Income Stagnation

8/1/10 Income Stagnation

New documents released by a congressional subcommittee indicate that Coast Guard officials allowed BP to use excessive amounts of chemical dispersants in the Gulf of Mexico.

China’s manufacturing grew at the slowest pace in 17 months in July as the government clamped down on property speculation and investment in energy-intensive and polluting factories.
The Purchasing Managers’ Index fell to 51.2 from 52.1 in June, the Federation of Logistics and Purchasing said on its website today. That was less than the median forecast of 51.4 in a Bloomberg News survey of 15 economists.

Unemployment probably climbed in July, raising the risk American households will keep a lid on spending for the rest of the year, economists said before a government report this week.
The jobless rate rose to 9.6 percent last month from 9.5 percent in June, according to the median estimate of 57 economists surveyed by Bloomberg News ahead of a Labor Department report Aug. 6. A drop in federal census workers as the population count wound down depressed payrolls by 60,000, the data may also show.

Mark Zandi and Robert Shiller have released a report detailing the state of the troubled housing sector, and it isn't pretty. Here are the highlights:
There is almost $2.4 trillion mortgage debt for homes in negative equity, 19% of all U.S. households
The total negative equity is $771 billion, $234 Billion in just California
There are 4.1 million homeowners with more than 50% negative equity (they owe 50%+ more than their homes are worth), 672,000 in just California.

ZeroHedge: "In continuing with the trivial approach of actually caring bout fundamentals instead of merely generous (and endless) Fed liquidity, we peruse the most recent RealPoint June 2010 CMBS Delinquency report. The result: total delinquent unpaid balance for CMBS increased by $3.1 billion to $60.5 billion, 111% higher than the $28.6 billion from a year ago, after deteriorations in 30, 90+ Day, Foreclosure and REO inventory. This represents a record 7.7% of total outstanding CMBS exposure. Even worse, total Special Servicing exposure by unpaid balance has taken another major leg for the worse, jumping to $88.6 billion, or 11.3%, up 0.7% from the month before. And even as cumulative losses show no sign of abating, average loss severity on CMBS continues being sky high: June average losses came to 49.1%, a slight decline from the 53.6% in May, but well higher from the 39.6% a year earlier. Amusingly, several properties reported loss % of 100%, and in some cases the loss came as high as 132.4% (presumably this accounts for unpaid accrued interest, and is not indicative of creditors actually owning another 32.4% at liquidation to the debtor in addition to the total loss, which would be quite hilarious to watch all those preaching the V-shaped recovery explain away. Of course containerboard prices are higher so all must be well in the world). Putting all this together leads RealPoint to reevaluate their year end forecast substantially lower: "With the combined potential for large-loan delinquency in the coming months and the recently experienced average growth month-over-month, Realpoint projects the delinquent unpaid CMBS balance to continue along its current trend and potentially grow to between $80 and $90 billion by year-end 2010. Based on an updated trend analysis, we now project the delinquency percentage to potentially grow to 11% to 12% under more heavily stressed scenarios through the year-end 2010." In other words, the debt backed by CRE is getting increasingly more worthless, even as REIT equity valuation go for fresh all time highs, valuations are substantiated by nothing than antigravity and futile prayers that cap rates will hit 6% before they first hit 10%."

Edward Luce: "The annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1 per cent have tripled. In 1973, chief executives were on average paid 26 times the median income. Now the multiple is above 300. The trend has only been getting stronger. Most economists see the Great Stagnation as a structural problem – meaning it is immune to the business cycle."

The UAE said Sunday it will block key features on BlackBerry smart phones, citing national security concerns because the devices operate beyond the government's ability to monitor their use.

David Stockman: "The total US debt, including states and municipalities, will soon reach $18 trillion dollars. That is a Greece-like 120% of GDP."